ABC BUSINESS

WELCOME

Steve Smith

Steve Smith AREINZ
Managing Director

The All Blacks have started their Tri-Nations and Bledisloe Cup campaigns with resounding victories over South Africa and Australia and are just one win away from clinching both titles emphatically. While we wouldn’t suggest a direct correlation between the All Blacks' performances and our own, we are experiencing record business sales with July being our best month in over a year. In a mostly bleak media landscape, where good news is usually buried in the back pages, we are very encouraged by these results and believe there are a number of reasons.

The global recession, and its domestic implications, has understandably made investors cautious, and there have been a lot of bargain hunters waiting for rich pickings in an under-performing market. The onset of winter always takes a bit of heat out of the market as buyers go into hibernation and the pre-budget jitters tend to induce a 'let's wait and see what happens' mentality.

Now things are changing - the spring thaw seems to have arrived early and the budget announcements revealed little new information. Now that these events have largely passed without incident, buyers start to regroup. The recession has certainly dented the performance of many businesses but the worst appears to be over and the bargains never materialised. The reality is that good businesses are hard to find and that it's worth paying for quality. Many frustrated buyers are now finally realising what we’ve been telling them all along – that the opportunists have been largely misinformed and that you have to expect to pay fair value for a good business.

The Official Cash Rate (OCR) was increased by a further 25 base points to 3% on Thursday. The previous increase met with considerable debate as to why it was either necessary or desirable, and the same protagonists have once again been encouraged to voice their respective points of view. Opinion seems to be divided roughly 50:50 with each supporter countered by an opposing naysayer. Perhaps the most important part of governor Bollard's statement was: "The pace and extent of further OCR increases is likely to be more moderate than was projected in the June statement." This probably adds weight to the ‘why did we have to do it’ camp. That said, do it we did and it’s time to move on.

On the back of the OCR announcement, the governor curiously managed to talk down the exchange rate, when we would typically have expected the opposite. There were a whole host of reasons offered as to why the market reacted this way but normal transmission has resumed and the kiwi dollar however is back up around 73 cents against the greenback. Primary producers are getting no respite from this monetary policy and are finding it difficult to produce the export led recovery we have been told is the way forward.

Back home, trading banks have advised of increases to floating interest rates for mortgage holders although short term fixed rates are starting to come down. Any proposed increases are still well under historical averages and its cheap money for prudent reinvestment. Trading banks are still a little hawkish on business lending but will provide advances where the security is solid and the cash flows are reliable, and vendor financed transactions are seeing a lot more activity. Good businesses will attract finance opportunities and well presented packages are more likely to pass muster.

Like the All Blacks, we know that it's too soon to start celebrating, but we also know that having a good game plan and being well prepared can make all the difference.

Regards,

Steve Smith AREINZ
MANAGING DIRECTOR

profitable printing business

Overview

This company is a 40 year old printing business that the present owners, have operated for the last 13 years. By placing an emphasis on quality, customer service, and building face to face relationships, the company has grown into the success it is today.

The Vendors wish to move on to unrelated projects so have made this business available for sale.

This printing business has built up a niche market within the restaurant and hospitality trade. In addition to the specialist hospitality market, they offer a complete offset and digital service to all customers, including an in-house graphics department.

Costing and estimating, as well as design software have been kept upgraded, so with good computers and broadband the company is well prepared to do business via the internet and its own website.

The business produces a large range of commercial offset printed products in-house, from simple business cards and letter headings right through to top-of-the-line marketing collateral and books, often creating the artwork from scratch.

As well as offset printing there is a top quality digital service delivering high quality low cost short-run printing such as business cards and booklets. The machine’s variable data capabilities make it an excellent machine to print invitations and other personalised materials on.

Strength of the Business

Strong Brand: As most industries are price/quality dependent, the success of this business over the years is a testament to the company’s ability to deliver on all counts.

Suppliers: It has established strong relationships with reliable, long term suppliers from whom it receives good support. The businesses have grown together and there is potential for more growth.

Product Range: It has always aimed at the quality end of the market and their products reflect the standard needed to maintain sales in this market.

Customers: This business has regular B2B customers and this ensures continuity of sales with minimal bad debts.

Location: located within easy reach of the motorway and Greater Auckland.

Versatility: It is capable of producing a wide variety of product in-house.

Competition

The Vendors feel that a new-comer to the industry would have to set up the overheads similar to this business in order to compete on a level playing field. But without a mature customer-base, the first three years would be extremely difficult.

Customers

The diverse number of customers is the strength of the business as there is no reliance on any single customer for sales. The risk is spread across a variety of customers. The present customer base is over 600, not counting cash sales. There are approximately 500 active customers ordering monthly.

Financials

A Statement of Financial Performance for the years of 2007/10 as prepared by the Vendor’s accountants shows the following:

Profit Summary
	2010	2009	2008	2007
Sales	783,167	788,476	828,476	924,025
Owners Profit	$202,181	$226,509	$253,944	$223,894

Staff

The team of employees consists of four people: two printers, guillotine operator and graphic designer. Most are long serving with a strong team spirit. All have current Employment Agreements with full job descriptions and all have a good command of English.

The Owner’s Role

The two owners share the role of General Manager and the duties include the day to day handling of all issues that arise: ie all accounts, wages, forward planning, purchasing. The two Vendors estimate that they work 40 combined hours per week within the business and feel that an incoming owner could fill both of their roles without the addition of extra staff or hours.

The owners are prepared to give the new owner a comprehensive period of assistance and feels that this will make for a trouble free transition.

Machinery and Software

All machines are in good working order and have been well maintained.

The offset plant includes one two-colour and two one-colour, late model Heidelberg machines. There is also a guillotine and binding machines so all finishing can be handled in-house.

The main software includes modules for invoicing, statements, delivery dockets, print management forms and history. It has all the full back-ups and has yearly upgrades. There are also various other software packages that are used for design etc within the business.

Premises

The building is safe, secure with a good alarm system and is well located with easy access and parking in commercial premises in South Auckland. The 320 sqm premises are located on two floors and are clean and tidy and fitted out to a high standard. The main production area is located downstairs with a large roller door entry that allows for forklift access. The light and airy interior is well laid out with shelving and easy access to all machinery. The upstairs air conditioned interior office is ideally suited for the business’s usage and has a separate space for offices, staff-room and services.

Options for Occupancy

The Vendor is the owner of the property and will grant a lease of the premises
or
will sell the freehold land and buildings to the purchaser of the business, priced at $580,000

Summary

This is a well-run and profitable business. It would suit someone with a mix of sales and management skills wanting a business with a regular, steady clientele and the opportunity to build on this company’s reputation for quality and dependability.

Price

Tangible Assets	$280,000.00
Intangible Assets	$215,000.00
Stock	$30,000.00 (Approximately)

Total Price	$525,000.00

Contact Peter Nola
09 630 1600, 021 507 313

Ref: 22080

Click here to learn more

WHat lenders need to know

Richie Lowe

John Paine B.Sc Dip BIA

In my last newsletter I gave you a background to Global Pacific Corporation and what we do. To see that newsletter click here.

I also promised I’d tell you tell you the most important things lenders are looking for when financing a business. Well the following is not a complete list but it will give you a good idea of what banks and other lenders need to evaluate and approve your requirements. It mainly relates to small to medium sized businesses (SMEs). Large established businesses are a different story.

What Lenders need to know

How much equity (cash) are you putting into the business? Nobody is interested in lending you money if you have nothing to lose if it all goes wrong. This is so obvious that I hesitate to say it. But you would be amazed how many people think that they can finance 100% of the purchase price - and see my comments on goodwill below.
How was the selling price of the business determined - for example multiple of earnings. And how is the price broken down? How much for plant and equipment? What’s the value of the stock you are buying - and is it at cost or valuation? Is there a valuation of the business, and if so on what was it based?
Goodwill. Most existing businesses for sale have an amount in the price allocated to goodwill. You need to know how the goodwill has been calculated. It’s usually on historical profitability. Nobody lends on goodwill (except possibly in the case of strong franchises, but that’s another story).
There are other goodwill factors that cannot be easily valued in monetary terms but which are extremely valuable. An existing business will have customers they have built up over the years they have been operating. Who are they? Does the business have a mailing list? Has their location something to do with it? Has it something to do with the personality of the previous owner and his or her staff? We’ve all seen how important the people who run a business have on their sales and profitability and unless you can emulate that, goodwill disappears very quickly.
You need to show some trading history. New businesses are very hard to finance. If it’s an existing business you will need up to 3 years of financial accounts.
What experience do you have in running such a business and who are the other key staff involved? A copy of your CV (experience in business, not the school you went to) is essential.
What is your business plan going forward? What are the financial projections? What do you see as the success factors and risks? A properly constructed business plan makes all the difference between obtaining the finance or not. We can help you here.
Are you buying just the business or the business plus the premises it operates from? If you are buying the premises too, what is the value of the real estate? An up to date valuation of the property is essential. If you’re not buying the premises you will need a copy of the lease agreement. The terms of the lease are a very important factor in obtaining finance.
What other specific assets could you offer as collateral security? The most common is residential property. What is the valuation of that security and the amount of any loans on it? Generally the more specific collateral security you can offer the more you can borrow. The best security is property.
What are your working capital requirements? These can often be funded against debtors or stock.
You will need to personally guarantee the loan so a complete Statement of Position is necessary. The better your financial strength the easier it will be to borrow. Do you have any credit glitches – a credit report will need to be obtained at some time.
What other income do you have, if any? You will need to provide proof of that income, for example your last tax return or a letter from your accountant or employer.

What to do now

The first step is for you to contact us to discuss the proposal and we’ll tell you what we need. Once we’ve received the basic information, and we’ve agreed on the general terms for the loan, we’ll send you a mandate appointing us to raise the money.

We usually work on a success based fee payable only on the satisfactory delivery of the mandated proposal. But if you’d like us to help you prepare a business plan we’re happy to do that too for an agreed fee.

Most of the work in preparing the application for finance can be done by phone, fax and email. You can get more information by phoning us on 09 303 3700 or you can enquire online here. In either case tell us you read about our services through ABC business.

John Paine is a consultant for Global Pacific Corporation. He has over 30 years experience in the merchant banking and finance industry.